economics

1. which statement identifies the condition necessary to achieve pareto optimality?
a all consumers maximise their utility subject to their available income.
b it is not possible to produce greater output with the resources available.
c_ it is not possible to reallocate resources to make someone better off without someone else
becoming worse off.
d potential losers from any reallocation of resources cannot be compensated by those who
gain.

2 the diagram shows a production possibility curve (lm) for an economy producing agricultural
goods and manufacturing goods.
8
agricultural
goods
m
(6) :
manufacturing goods

what can be concluded from the diagram?
a_ the economy must be allocatively efficient at point r.
b_ the economy is pareto efficient at point t.
c_ the economy is productively efficient at point s.
d_ the opportunity cost is constant as we move from l to m.

3. the private benefit of an activity is greater than the private cost. the social benefit of the same
activity is less than the social cost.
what must be true of the activity?
a_ external benefit = external cost
b_ external benefit > external cost
c_ external benefit < external cost
d_ external benefit > private benefit

4 what is the central principle of marginal utility theory?

a as more is consumed of a normal good, the additional satisfaction gained increases.

b consumers are in equilibrium when the marginal utility gained from good x equals the price
of good y.

c consumers are in equilibrium when the ratio of the marginal utility of goods x and y are
equal to the ratio of their prices.

d consumers are in equilibrium when the total utility gained from good x is the same as gained
from good y.

5 the diagram shows five budget lines. line 1 is the original budget line.
food *
in
a drink
which pair of budget lines shows a relatively higher price for drink compared with food after a
move from budget line 1?
a 2and3 b 2and4 c 3and5 d 4and5

6 broken rice is an inferior good.
what would be the resulting income and substitution effect on the quantity demanded of broken
rice if its price falls?
quantity demanded | quantity demanded
due to income due to substitution
effect effect
a falls falls
b falls rises
cc rises falls
d rises rises

7 firms in a market decide to collude over the price that they charge for their products.
what is not likely to be a feature of the market?
a firms have similar cost structures.
b_ products of the firms are close substitutes.
c_ there are high barriers to entry into the market.
d_ there is a large number of competing firms.

8 firms often remain small even when growth could result in technical economies of scale.
what is not a likely reason for this?
a demand for the product tends to change often and rapidly.
b individual entrepreneurs wish to keep a tight personal control over their own firm.
c_ the entrepreneurs who establish the firms tend to be ambitious risk-takers.
d_ the market in which they operate is very specialised in nature, often selling unique products.

9 the diagram shows the short-run equilibrium for a firm operating in a monopolistically competitive
market.
cost,
revenue ac
mc
ar
: mr
0 q, quantity
what is not likely to occur at the long-run equilibrium?
a the individual firm’s demand curve is more elastic.
b_ the individual firm’s demand curve has moved left.
c_ the profit-maximising price is greater than average cost.
d_ the profit-maximising price is greater than marginal cost.

10 in which circumstance would direct provision of a product by the government be least likely?
a when fixed costs are very high
b_ when the demand for the product is very high but unit costs are low
c_ when the industry faces large natural barriers to entry
d when the minimum efficient scale of production is above the level of demand at current
prices

11 the table shows a firm’s total costs corresponding to different levels of output.
wiatcosts) | 8 | 4 | 18 | 22 | 28 36 | a8 | 8
if the market price is $8, within which range of output would a profit-maximising firm in a perfectly
competitive industry produce in the short run?
a 1-2 units b 3-4 units c 5-6 units d 7-8 units

12 what would encourage an increase in the number of small firms ?
a increasing government regulation of conditions in the workplace
bmore risk-averse (cautious) lending policies by banks
c stronger government laws against the growth of monopoly
d tougher penalties in the case of personal bankruptcy

13 what is not a source of market failure?
a_ imperfect information
b income inequality
c monopoly
d_non-excludability

14 a government issues free non-tradeable pollution permits to firms. they specify the maximum
amount of polluting gases these firms are allowed to emit. in a change in legislation, the permits
can be traded with other firms.

assuming that all other costs and revenues remain the same, what will be the impact on the
profits of the firms that are now buyers or sellers of the permits?
profits of buyers | profits of sellers
of permits of permits
a decrease decrease
b decrease increase
cc increase decrease
d increase increase

15 what is an example of ‘nudge’ theory when applied to encouraging healthy eating?
a advertising the benefits of healthy eating
b_ increasing tax on sugary foods
c introducing a subsidy for fruit growers
d_ supermarkets putting fruit near cash registers

16 what is a definition of transfer earnings?
a_ the amount of earnings above that needed to keep a worker in their current job
b_ the minimum earnings needed to keep a worker in their current job
c_ the social security benefits paid to workers whose earnings are below the poverty line
d_ the amount of earnings needed to cause a worker to change to a different job

17. the chart gives information about the average daily wage rate for all industries in india.
280
rupees 270
per day 260
250
240
230
220
210
200
2011 2012 2013 2014
year
what could have caused this trend in wage rates?
a anincrease in capital-intensive production
b_anincrease in the number of industrial workers
c_anincrease in the number of people unemployed
d_anincrease in the productivity of labour

18 the table shows the annual percentage economic growth rates of three countries from 2012
to 2018.
| ae aes | a

2012 1.9 1.5 -2.9
2013 3.0 2.0 -1.7
2014 0.5 0.4 1.4
2015 -3.5 1.2 3.7
2016 -3.3 0.6 3.2
2017 1.1 1.9 3.0
2018 1.1 0.8 2.6

what can be concluded from the table?

a brazil was in the downturn of its trade cycle in 2015.

b_ japan’s real gdp was at its smallest in 2014.

c_ spain experienced the worst recession of the period.

d_ spain was in the downturn of its trade cycle in 2014.

19 what could cause the official statistics for the national income per head of a developing country
to overstate the true level of economic well-being of its inhabitants?
a _ if there is dependence on barter in internal trade
b _ if subsistence agriculture dominates total economic activity
cif services are an important component of exports
dif there is extreme income inequality

20 what is shown by the kuznets curve?
a the rise and then fall in the balance of trade deficit following a devaluation
b _ the rise and then fall in the economic growth rate as the gdp increases
c_ the rise and then fall in inequality as the level of income per head rises
d the rise and then fall in tax revenue as the tax rate is increased

21 which type of unemployment is associated with a deficiency in aggregate demand?
a cyclical
b frictional
c - structural
d_ voluntary

22 there has been a switch in demand from goods produced by labour-intensive methods of
production to similar goods produced using high-technology methods of production. this has led
to an overall increase in unemployment.

what is the best policy to reduce this type of unemployment?
a_ reduce the rate of income tax

b increase the rate of interest on borrowing for investment
c subsidise products produced by labour-intensive methods
d subsidise exports produced by high-technology industries

23 what would not exist in a free-market, open economy?
a_ autonomous investment
b_ household saving
c_ import spending
d indirect taxation

24 what is most likely to be found in an economy with a positive output gap?
a ahigher potential than actual gdp
b high unemployment
c inflation
d low labour costs

25 which statement about the keynesian liquidity preference demand for money model is correct?
a both the transactions and precautionary motives for holding liquidity are interest rate elastic.
b the demand for liquidity is completely interest rate inelastic at low rates of interest.
c_ the demand to hold liquidity by households is stable.
d_ the rate of interest on long-term government securities is inversely related to their price.

26 the table shows an individual’s planned consumption at different levels of income.
what can be concluded about changes in the marginal propensity to consume (mpc) and
average propensities to consume (apc) as income rises?
( [we [aro
a constant constant
b constant falling
cc falling constant
d falling falling

27 which items in the table are classified as foreign aid?
; . official portfolio
foreign direct 3
f development investment
investment :
assistance flows
a no no yes
b no yes no
cc yes no yes
d yes yes no

28 an increase in which factor will cause a decrease in investment spending?
a business confidence
b company profits
c interest rates
d national income

29 the diagram shows the relationship between tax revenue and the tax rate.
tax revenue
collected /

0 25 50 75 ~~ 100
tax rate on
income (%)

what is the curve on the diagram called?
a income elasticity curve

b  jcurve

c_ lorenz curve

d laffer curve

30 the table shows the rate of inflation (consumer prices index) and the monthly percentage rate of
unemployment for the usa over a six month period in 2017.
rate of unemployment (%) 3.9 3.8 3.9 3.9 3.8 3.7
what can be concluded from this table?
a falling inflation leads to lower unemployment.
b increasing inflation leads to rising unemployment.
c_ the rate of inflation correlates exactly with the rate of unemployment.
d_ the rate of inflation has a marginal effect on the rate of unemployment.

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